High-speed rail­way sparks con­cern on costs

China Daily (Canada) - - SHANGHAI - By LI YANG in Shang­hai liyang@chi­nadaily.com.cn

China ac­tively sells its high­speed rail­way around the world, but the gov­ern­ment’s pas­sion in pro­mot­ing it is caus­ing a heated de­bate at home on the ra­tio­nale be­hind the costly project.

Zhao Jian, a pro­fes­sor of eco­nomics at Beijing Jiao­tong Univer­sity, and Gao Bai, a pro­fes­sor of trans­porta­tion stud­ies at Chengdu-based South­west Jiao­tong Univer­sity, pub­lished ar­ti­cles hold­ing op­pos­ing views on China’s high-speed rail­way project in the Shang­hai-based Ori­en­tal Morn­ing News dur­ing the past two weeks. Their views are rep­re­sen­ta­tive of each side.

Zhao wrote: “Whether the high-speed rail­way projects can re­al­ize a bal­ance be­tween its profit and loss, and if the projects can im­prove the al­lo­ca­tion ef­fi­ciency of trans­porta­tion re­sources, and op­ti­mize the over­all trans­porta­tion struc­tures are two im­por­tant cri­te­ria judg­ing the suc­cess of the projects.”

Ac­cord­ing to Zhao’s cal­cu­la­tions, rail­way projects have failed both of the two cri­te­ria so far in China. By the end of last year, statis­tics from China Rail­way Corp, which re­placed the for­mer Rail­way Min­istry last March, the cor­po­ra­tion’s over­all debt was 3.2 tril­lion yuan ($525 bil­lion). At least 2 tril­lion yuan of that amount went for the con­struc­tion of high-speed rail­ways. Each year the cor­po­ra­tion will pay at least 100 bil­lion yuan in­ter­est on its debt.

So far, the over­all rev­enue from the cor­po­ra­tion’s high­speed rail­way business each year has not been enough to pay the in­ter­est on the debt in­curred in build­ing it, even be­fore its op­er­at­ing costs are in­cluded. The cor­po­ra­tion has to bor­row new debt to re­pay the old debt. “If the gov­ern­ment does not sub­si­dize the cor­po­ra­tion, the cor­po­ra­tion’s debt cri­sis will break out in two years,” Zhao pre­dicted.

High-speed rail­way is a cap­i­tal-in­ten­sive and huge-vol­ume means of trans­porta­tion. The cost of build­ing ev­ery kilo­me­ter of a high-speed rail­way is two to three times that of a con­ven­tional rail­way, and the high­speed rail­way’s tech­nol­ogy and stan­dards are in­com­pat­i­ble to plain rail­ways. “Th­ese tech­no­log­i­cal and eco­nomic prop­er­ties of high-speed rail­way mean the high-speed rail­way projects can­not make ends meet with­out the support of a huge pas­sen­ger flow,” Zhao wrote.

Only the Beijing-Shang­hai high-speed rail­way’s deficit has been kept within a safe range, los­ing about 3 bil­lion yuan each year and car­ry­ing 100 mil­lion pas­sen­gers ev­ery year, be­cause its as­set-li­a­bil­ity ra­tio, 30 per­cent, is much lower than the other high-speed rail­ways in China, thanks to the gov­ern­ment’s huge sub­sidy to the first mile­stone line. This line con­nects Beijing, Tian­jin, Shan­dong, Jiangsu, Shang­hai and Zhe­jiang, all ma­jor play­ers on China’s eco­nomic map, and home to about 300 mil­lion peo­ple.

The fast de­vel­op­ment of high- speed rail­ways has squeezed the amount of rail­way freight trans­porta­tion. Rail­way’s share in the land­freight trans­porta­tion mar­ket shrank to 22 per­cent last year from 54 per­cent in 1998, while the road trans­porta­tion’s pro­por­tion rose to 51 per­cent from 24 per­cent, con­sum­ing huge amounts of fos­sil fu­els, pol­lut­ing the en­vi­ron­ment and rais­ing the trans­porta­tion costs by a large mar­gin. In the United States, rail­ways’ share of freight stays at about 40 per­cent, al­ways markedly higher than that of the road.

“China should im­prove its cur­rent rail­way net to meet the de­mands of its fast-grow­ing freight trans­porta­tion, and fur­ther im­prove the ser­vice level for the plain pas­sen­ger rail­way trains by end­ing the cor­po­ra­tion’s mo­nop­oly and pro­mot­ing mar­ket com­pe­ti­tion,” Zhao wrote.

He said China should draw lessons from Ja­pan, France, Ger­many and Italy, all big play­ers in the global high-speed rail­way mar­ket. “Ex­port­ing tech­nol­ogy, con­tract­ing projects and ex­port­ing the high­speed rail­way train units are more re­li­able and prof­itable busi­nesses, min­i­miz­ing the risks,” Zhao wrote.

Gao Bai’s ar­ti­cle was pub­lished one week later, re­fut­ing Zhao’s points that the high­speed rail­way should not be judged only by eco­nomic bal­ances on pa­per.

“The high-speed rail­way is dif­fer­ent from gen­eral prod­ucts and ser­vices, be­cause it pro­motes re­gional eco­nomic de­vel­op­ment, ex­tends the in­dus­trial chains, and con­sol­i­dates the state gov­er­nance abil­ity,” Gao wrote in his ar­ti­cle. “The high-speed rail­way can help China up­grade its ex­port struc­ture, pro­mote the re­gional in­te­gra­tion of the Eurasian con­ti­nent, and raise China’s global in­flu­ence.”

Were it not for the gov­ern­ment’s sub­sidy, China could not build its high-speed rail­way so fast. The gov­ern­ment re­gards the state-run rail­way sys­tem as an im­por­tant pub­lic ser­vice, and that’s why the high-speed rail­way con­tin­ues grow­ing fast, de­spite heavy debts.

“The high-speed rail­way has strong pos­i­tive ex­ter­nal­i­ties, be­cause it pro­motes re­gional in­te­gra­tion, and in­creases the liq­uid­ity and ex­changes of pro­duc­tion fac­tors,” Gao ob­served in his ar­ti­cle. “The ex­port of high-speed rail­way projects can also help China find mar­ket for its over­ca­pac­ity in­dus­try and cap­i­tals, and di­ver­sify its for­eign ex­change re­serves.”

He urged the Chi­nese gov­ern­ment and the China Rail­way Corp to pay spe­cial at­ten­tion to pro­tect the in­tel­lec­tual prop­erty rights of China’s high-speed rail­way in over­seas mar­ket, and di­ver­sify fi­nanc­ing chan­nels to keep the fi­nan­cial risks un­der con­trol.


High-speed trains in Shang­hai Hongqiao Rail­way Sta­tion, one of the largest in China. The rush to build high-speed rail in China has cre­ated large debt pay­ments.

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